It can be difficult to attract investors to projects in under-invested neighborhoods, where infrastructure may be lacking and strong returns less likely. That’s why a pair of nonprofits are trying to use New Markets Tax Credits to help pay for their multi-million dollar projects: a corporate headquarters and a state-of-the-art track and field facility.
Here’s how the New Markets Tax Credits work: The U.S. Treasury Department lets groups called Community Development Entities, or CDEs, apply to sell tax credits to interested investors. The CDEs then invest the money from the sale into projects in low-income communities, while the investors get to offset their tax burden.
Those investors can buy a dollar's worth of credits for 70 to 75 cents, said Brett Theodos, a community development researcher at the nonprofit Urban Institute, which is based in Washington D.C.
"[The CDE] may sell them $10 million in tax credits, and maybe for that it gets $7 million in actual money that it could use to do something," he said. "And it takes that $7 million, and it invests it."
But Theodos said it's not exactly a discount, since investors are not able to claim the tax credits immediately. The whole idea is to keep money in the area of the investment, in this case for at least seven years.
The New Markets Tax Credit program started in 2000 as a way to draw private investment to disadvantaged communities.
There were 44 New Markets-funded projects in Louisville through 2016, according to records shared online by the Treasury Department. They ranged in amount from $380,000 to $60 million and were often used to make real estate loans, put deposits into community banks and offer below-market interest rates.
"New Markets as a whole is more typically used for larger projects. That doesn't mean mega projects in the billions," Theodos said. "But it does mean things typically north of $1 to $2 million, probably more average in terms of 7, 8, 9 million dollars."
Tax Credits For West End Developments
In December, Passport Health Plan announced it had secured a major New Market financing round of more than $24 million, which it was planning to use for its new corporate headquarters campus in the West End. That project was expected to cost about $130 million, but it’s now on hold because of the organization’s financial troubles.
Passport CEO Mark Carter recently told WFPL the tax credits were a part of the overall financing for that project
"We were using New Market Tax Credits, about $24 million, and we had a $63 million line of credit construction loan through Old National Bank and a consortium of banks," he said.
A Passport spokesman confirmed that the organization invested about $24 million into the land and building since last year. About $8.5 million of that came from New Markets financing.
The question now is whether Passport will be on the hook to pay that back if the project doesn’t get completed. The spokesman said most of the overall $24 million New Markets financing is a loan, but about $8.5 million could be forgiven, based on the terms of the deal. He could not say whether Passport would have to repay any funds to New Markets investors.
Theodos, of the Urban Institute, said that sometimes New Markets investments are technically structured as equity but treated as grants, which would mean repayment is not expected.
The Louisville Urban League is another local nonprofit eyeing New Markets Tax Credits. It hopes the credits will help get its state-of-the-art track and field project off the ground. CEO Sadiqa Reynolds spoke at a meeting earlier this week, imploring Metro Council members to authorize a promised $10 million bond for the project.
Reynolds said she is in the process of putting together the financing package for the planned $35 million track and field facility on West Muhammad Ali Blvd.
"For the whole time, we’ve had $10 million in from the city, and that’s part of what you leverage in order to ... get the New Markets Tax Credits as you shop different banks," she said.
The Council is expected to take a vote on this and many other pre-approved bonds next week. The authorization was held up by Council members who had questions about how the bonds related to the city’s other fiscal issues.
The Urban Institute’s Theodos said New Markets investors require other forms of financing to offset the risk that the recipient wouldn’t be able to pay off its loan.
That’s a concern Reynolds said she had heard, as she urged Council members not to delay approving her bond.
In an interview with WFPL, Reynolds declined to say how much she hoped to raise in New Markets Tax Credits. So far, the Urban League has commitments for about half the funds it needs, about $17 million, including the $10 million city bond.
